Property prices in Hong Kong are likely to rise for the rest of 2013 following a short term correction of ten percent, according to a recent report by property consultancy firm Colliers. Colliers also predict that potential buyers will bear greater transaction costs in order to enter the market as the expectation of returns is sustained by positive aspects of the macro-environment.
Colliers predict a shift in demand from the sales to leasing market as potential buyers react to the latest property cooling measures. Rental rates are likely to increase as a result of higher demand and boost capital values, which will achieve the opposite effect than was intended by the latest measures, according to Colliers.
The Hong Kong Monetary Authority introduced a further round of cooling measures to the market in February to curb local investment demand. These measures followed previous attempts to cool Hong Kong’s property market, and included the doubling of ad valorem stamp duty on most property sales and the tightening of requirements for the approval of mortgage loans.
After previous rounds of cooling measures, potential buyers were forced to factor additional charges into their overall acquisition costs with the expectation that further capital appreciation would remain intact. Prices began to grow again as a result, despite mild corrections following the announcement of each new measure.
Colliers predict the same outcome for February’s cooling measures, even though the level of stamp duty has doubled.
Less expensive properties are likely to become more appealing to investors as a result of the differences in stamp duty between price brackets. Colliers predict that this will enhance market segmentation and cause greater price growth in the lower-price bracket.
Most vendors are likely to enjoy robust potential capital growth on their property assets, according to Colliers, as interest rates are unlikely to grow to the same levels that they were before the global financial crisis. As a result, there is little incentive for sellers to implement discounted rates.
Colliers believe that there are limited opportunities for short-term investors in Hong Kong’s residential market as a result of the latest measures. Colliers also point out the possibility that long-term investors may seek opportunities in other Asian markets if the government decides to implement similar measures in Hong Kong’s non-residential real estate sectors.
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